Clark Howard

Why Are Retailers Adding an Additional $1 Charge on My Credit Card?

It's a great idea to review your credit card statements at least once a month. It's the one bill that money expert Clark Howard recommends you get via mail.

However, lots of people check their credit card transactions online. If that’s you, don’t be surprised to see an occasional $1 charge (or another smaller amount) alongside legitimate purchases.

These so-called preauthorization charges are part of a system that protects merchants. Especially merchants that are otherwise blindly extending you a great deal of credit.

Let’s take a look at how these preauthorization charges work and why they exist.

Why Do Retailers Like Gas Stations Add $1 Preauthorization Charges to My Credit Card?

Sometimes companies charge my credit card an extra dollar when I make a purchase. The charge goes away later. Are they trying to scam me to earn interest?

That’s what a listener recently asked Clark.

Asked Dennis in Oregon: "I've noticed a recent trend by retailers when [I use] my credit card to make purchases. On my statement they charge the agreed-upon item cost then I see another charge of $1 by the same retailer on the same purchase.

"When I called they both indicated this was done in case the original card purchase wasn't accepted. [They told me] the dollar will be refunded. Sounds like a scam to hold my money for a few days to collect the interest on it?"

Sending a preauthorization charge to your credit card is a common practice. That’s especially true for online sellers, gas stations, car rental companies and hotels.

When you pay via credit card at a gas station pump, they’re extending you an enormous amount of credit, Clark says. You’re filling up your tank with gallon after gallon of expensive gas with a credit card that may later get declined.

The gas station doesn’t know the final amount of your purchase when it approves your credit card. So the gas station runs a $1 preauthorization charge through your card as a placeholder. This allows the gas station (or any other merchant) to confirm your credit card will accept a charge from them.

“There should be a better way for a merchant to be able to do an approval inquiry prior to [a credit card] purchase. But that’s the way the system’s worked for a long time,” Clark says.

“If you look at your online access to your statements, you will see these $1 things. And they’ll be there and then they vanish, essentially. And that’s what’s going on here. So don’t worry. Be happy.”

Final Thoughts

It can be jarring to see charges on your credit card that you didn’t authorize. But not to fear. In almost every case, these are preauthorization charges.

Companies are not using them to scam you in order to pocket extra money. They’re protecting themselves against fraudulent charges.

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